A new generation of government-backed programs targeting would-be home buyers has emerged to bridge the rental-ownership gap in high-priced real-estate markets like Victoria’s.
With condominium prices pushing higher to reflect significant cost increases for construction, land, permitting and civic planning, the dream of homeownership for a generation of purchasers has grown more complex. The issue is further complicated by rising down payment requirements, stricter mortgage qualifications, and cost of living considerations.
Provincially-run BC Housing has recognized an opportunity to assist British Columbians entering the real estate market as homeowners, by taking steps to invest into financial programs and tools aimed at offsetting the challenges would-be homeowners face and lending a helping hand where it’s needed.
The organization's effort is perhaps the most robust and meaningful government-affiliated homeownership program to-date for British Columbians, and this article describes how BC Housing is helping renters buy a home, how its program differs from federal and municipal alternatives, and how purchasers can take advantage of BC Housing’s new tools catering to homebuying opportunities in Greater Victoria.
AHOP: BC Housing’s down payment and mortgage qualification assistance program for condominium pre-sales
One of the largest obstacles would-be buyers face is saving the down payment required to transact a real-estate purchase. As rental rates continue to rise, many BC residents find themselves with monthly housing costs on par with a traditional mortgage payment, but unable to secure cash resources to commit to saving a sufficient down payment. Even those who do save a 5%, 10% or 15% deposit, often find themselves unable to qualify for the larger mortgage amount associated with a smaller deposit. And while many pre-sale developers are willing to accept a deposit of less than 20%, if a purchaser’s mortgage payments are calculated to land higher than one-third of their monthly income, most banks will require a higher down payment to approve financing.
This is where a new initiative from BC Housing comes into play, known as the Affordable Home Ownership Program (AHOP). AHOP is a game changer for would-be purchasers who may be struggling to satisfy down payment requirements to meet a development’s pre-sale criteria, or qualify for a mortgage, or both.
For example, a pre-sale condominium valued at $350,000 can be purchased with a down payment of 10%, or $35,000. This means the buyer will have to carry a $315,000 mortgage, plus mortgage insurance (required for down payments less than 20% of the purchase price; more on this below). The bank, however, may not qualify the purchaser for a $315,000 mortgage as the monthly mortgage cost, plus a mortgage insurance premium, is higher than one-third of their monthly income. The only way to qualify would be to lower the amount of the mortgage – which is to say, increase the down payment – and this is where many would-be buyers find themselves trapped.
To help overcome this scenario, BC Housing’s AHOP, in partnership with select pre-sale offerings like Haven
from Chard Development, will match a purchaser’s 10% down payment commitment to achieve a 20% down payment, effectively satisfying a development’s down payment requirement, and helping purchasers qualify for their mortgage by lowering monthly mortgage payments and eliminating the need for mortgage insurance (and its associated monthly premium). This not only lessens the amount of personal savings a buyer must provide by a significant amount, but the larger down payment can also make the difference between bank approval for a mortgage and having to delay homeownership in order to amass an even larger up-front sum.
|Haven, a 100% AHOP-eligible condominium from Chard Development, is now selling. The project features over 100 residences and will rise on Johnson Street at Cook Street in Victoria's Fernwood neighbourhood. Chard Development |
How does BC Housing’s AHOP mortgage work?
The process is quite simple: BC Housing registers an interest and payment-free second mortgage against the home, to make the purchase viable for the buyer. This second mortgage is treated as equity by the banks, meaning the purchaser will apply for their mortgage as though they have a 20% down payment, not 10%. BC Housing’s 10% equity stake carries no immediate fees to the buyer.
For example, with the purchase of a $350,000 suite, a 10% down payment equals $35,000 with a mortgage of $315,000, plus mortgage insurance. The monthly payment (based on an interest rate of 2.32%) equates to $1,425. With a 10% down payment plus the AHOP contribution of an additional 10%, the down payment equals $70,000, with a mortgage of $280,000, and no mortgage insurance. The monthly carrying cost is significantly lower at $1,230. With BC Housing pushing the down payment up to 20%, that drops the monthly mortgage payment by almost $200 per month and over $2,300 per year. The savings could mean the difference between qualifying for a mortgage or having to seek additional down payment funds.
Benefit of a 20% down payment
Mortgage insurance is applied to purchases made with a down payment that is less than 20% of the purchase price. What this means, is a $350,000 pre-sale, purchased with a down payment of 10% (a mortgaged amount equal to 90% of the home’s price), will also include a nearly $10,000 insurance premium bumping up the monthly mortgage cost by roughly $45. This insurance comes into play whether a down payment is 10%, 15% or 19%, and is done away with entirely at the 20% threshold (equating to a mortgaged amount of 80% of the home’s price). BC Housing, topping up the down payment to 20%, removes this added cost.
What happens if you sell your home for a profit under AHOP, and can you buy BC Housing out of its equity stake?
If a purchaser using BC Housing’s AHOP chooses to sell their home, they will be required to pay BC Housing back their 10% equity stake based on the value of the home at the time of sale. Regardless of when this payment is made, the funds continue to work towards increasing housing affordability. At Chard’s Haven
project, BC Housing’s equity paid back is re-allocated to the City of Victoria’s Housing Reserve Fund for affordable housing initiatives.
For example, if after two years of homeownership, a purchaser sells a home originally purchased for $350,000 for an increased value of $385,000, the repayment to BC Housing would be $38,500. Under AHOP’s rules, a purchaser can repay BC Housing at any time and untether program restrictions (these restrictions are described below).
For those wondering if this repayment obligation is ‘worth it,’ bear in mind that in the example outlined above, thanks to BC Housing’s 10% down payment top-up, over that two year period the mortgage savings for the purchaser equate to over $4,600 compared to an equity repayment that is just $3,500 higher than the original second mortgage contributed by AHOP. The purchaser, in this example, ends up ahead by over $1,600 thanks to smaller mortgage payments and no mortgage insurance.
What happens if you sell your home for a loss?
In the event of a market down-turn, the appraised value of the home may be less than what was paid at the time of purchase. If that is the case, the 10% AHOP equity stake is paid back at a rate equal to 10% of the appraised value, even if it is lower than the value at the time of purchase.
What are the requirements and limitations of BC Housing’s AHOP program?
To qualify for BC Housing’s AHOP, purchasers must be Canadian citizens or permanent Canadian residents with residency in British Columbia for at least one year. Purchasers may not own real-estate anywhere in the world at the time of qualifying for the program, but do not have to be first-time buyers.
Household income must also total below the threshold set by BC Housing, which is based on the 75th income percentile for BC households. This means that to qualify to purchase a studio or one-bedroom home, a household must earn below $118,440 per year. For larger suites, like two and three-bedroom homes, household income may not exceed $168,310 per year.
What are the restrictions if you purchase a home with the assistance of BC Housing?
With the AHOP geared towards homeownership, rental restrictions remain in effect until the AHOP’s 10% equity stake is paid back to BC Housing, or five years has passed since the date of possession.
If a homeowner wishes to rent their suite within five years following possession, they are required to ‘pay it forward,’ meaning the purchaser must replay the equity stake at the present-day market value.
In this instance, should a homeowner move on from their pre-sale suite and make it available for rent two years after purchase, a third-party appraiser would calculate the fair market value of the suite, and the 10% AHOP portion would be paid back to BC Housing at a rate of 10% of the appraised value.
The appraised value can also be less than what was paid at the time of purchase. If that is the case, the 10% equity stake is still paid back at a rate equal to 10% of the appraised value.
|Sparrow, a 49-home condominium from developer Abstract Developments, includes approximately a dozen AHOP-eligible residences. The sold-out project is under construction on Cook Street at Hillside Avenue with completion targeted for 2023. Abstract Developments |
How does this program differ from other programs?
BC Housing’s AHOP has a unique differentiator, in that it partners with individual projects catering to purchasers qualifying under AHOP. This matches the suitability of the residences to the program, yielding a higher uptake rate thanks to a much greater level of familiarity among sales representatives, developers and lenders.
Under AHOP, the developer works directly with BC Housing to adapt qualifying pre-sale offerings, streamline communications with lenders, and in some cases, offer benefits such as special arrangements with lenders and resources to assist purchasers.
The present-day AHOP program is itself an adaptation of earlier efforts from BC Housing like the partnership at downtown Victoria’s Vivid at the Yates
condominium tower. This early adopter of BC Housing’s homeownership tools, completed in 2020, delivered below-market housing for qualifying first-time buyers and its uptake resulted in a highly successful sales campaign.
Although AHOP differs from the program available at the time of Vivid’s pre-sales, it is regarded as a more comprehensive measure economically, and gives program users the ability to ‘pay it forward’ through a shared equity stake.
The City of Langford has a new affordable homeownership program. How does BC Housing’s AHOP differ from what Langford is readying to launch in 2022?
In the fall of 2021, the City of Langford unveiled a homeownership affordability program for residents of the municipality.
Although similar to AHOP, Langford’s program is restricted to multi-person households with assets of $50,000 or less, no real-estate holdings, and applicants must be residents of the City of Langford of no less than two years.
Given its design and qualifications that appear to draw inspiration from programs like AHOP, Langford’s pilot project will assist applicants with one-quarter to three-quarters of a 5% down payment for a two-bedroom pre-sale home, and eligible home values are limited to a maximum of $450,000 which participants must pre-qualify for with a lender. Rentals are restricted for five years, and re-sales must fall under the auspices of the program with limited re-sale values for five years.
At this time, the Langford initiative is not available to single-person households.
|Vivid at the Yates, situated along the 800-block of Johnson Street in downtown Victoria, was the first BC Housing-backed condominium project in Greater Victoria targeting first-time homebuyers. The sold-out 20-storey tower received occupancy in early 2021. Chard Development |
How does AHOP differ from the federal government’s affordable homeownership program?
Unlike AHOP, the federal government’s First-Time Home Buyer Incentive Program is only available to first-time homebuyers (each mortgage applicant must be a first-time purchaser), and purchasers must secure mortgage insurance through the Canada Housing & Mortgage Corporation, meaning down payments must be below 20% and must carry an insurance premium. This premium, for a $315,000 mortgage as per the calculation from earlier in this article, is equal to approximately $500 per year.
The federal program provides up to 10% of a down payment for a pre-sale property (equal to a 10% equity stake in the home) for households earning a combined income of $150,000 or less. Applicants are limited to borrowing 4.5 times their annual income, or $337,500 for a $75,000 income. As per AHOP, the equity stake must be paid back either through the sale of the property, or at the end of the mortgage term. Renting of the home is prohibited, and it must be used as a primary residence throughout the life of the mortgage or until the equity stake is paid back.
Where can I find additional resources for BC Housing’s AHOP, and what south Island projects are currently taking advantage of AHOP?
At-present, AHOP is available for purchasers at Haven, a 104-suite condominium coming to the 1100-block of Johnson Street at Cook Street in Victoria’s Fernwood neighbourhood. Haven has floorplans that range from studio, to one, two and three-bedroom homes in a six-storey design. The project is specifically geared towards taking advantage of AHOP, and is planned for occupancy in 2023. To learn more about Haven, click here
Abstract Development’s Sparrow
condominium, now under construction on Cook Street at Hillside Avenue in Victoria’s Oaklands neighbourhood, offered approximately a dozen AHOP-eligible suites among its 49 homes (now sold-out). The six-storey condominium project is one of the first adopters of AHOP in Greater Victoria, and its occupancy is anticipated in 2023.
BC Housing has a framework for AHOP available here
(note: the link is a PDF file). A guide to BC Housing’s affordable rental and homeownership programs is available here
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